Page 234 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Unit 12: Management Control for Differentiated Strategies

12.3 Business Unit Strategy and Control System Notes

In this section, we consider intra-firm differences in control systems. Diversified corporations
segment themselves into business units and typically assign different strategies to the individual
business units. Many chief executive officers of multi-business organizations do not adopt a
standardized, uniform approach to controlling their business units; rather, they tailor the approach
to the strategy of each business unit.
Business unit strategy consists of two interrelated aspects: mission and competitive advantage.

12.3.1 Mission

The mission for ongoing business units could be either build, hold, or harvest. These missions
constitute a continuum, with “pure build” at one end and “pure harvest” at the other end. For
effective implementation, there should be congruence between the mission chosen and the
types of controls used. We develop the control-mission “fit” using the following lines of
reasoning.

1. The mission of the business unit influences the uncertainties that general managers face
and the short-term versus long-term trade-offs that they make.
2. Management control systems can be systematically varied to help motivate the manager
to cope effectively with uncertainty and make appropriate short-term versus long-term
trade-offs.

3. Thus, different missions often require systematically different management control systems.

Mission and Uncertainty

“Build” units tend to face greater environmental uncertainty than “harvest” units for several
reasons:
1. Build strategies typically are undertaken in the growth stage of the product life cycle,
whereas, harvest strategies typically are undertaken in the mature/decline stage of the
product life cycle. Such factors as: manufacturing process, product technology, market
demand, relations with suppliers, buyers, and distribution channels, number of competitors,
and competitive structure change more rapidly and are more unpredictable in the growth
than in the mature/decline stage of the product life cycle.
2. An objective of a build business unit is to increase market share. Since the total market
share of all firms in an industry is 100 percent, the battle for market share is a zero-sum
game; thus, a build strategy pits a business unit into greater conflict with its competitors
than does a harvest strategy. Since competitors’ actions are likely to be unpredictable, this
contributes to the uncertainty faced by build business units.
3. Both on the input side and on the output side, build managers tend to experience greater
dependencies “with external individuals and organizations than do harvest managers.
For instance, mission signifies additional capital investment (greater dependence on capital
markets), expansion of capacity (greater dependence on the technological environment),
increase in market share (greater dependence on customers and competitors), increase in
production volume (greater dependence on raw material suppliers and labour market),
and so on. The greater the external dependencies that the business unit faces, the greater
the uncertainty it confronts.

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